The past year might be described as the moment time of China's rise. Of course its rise long predates these years, but this fact has suddenly been recognised worldwide, well beyond the global elite. It is now part of the popular common sense, not simply in Europe but everywhere; indeed, Europe has been relatively tardy in this process. The buzz surrounding Hu Jintao's visit is part of this picture. The phenomenon is even evident in China itself, where the past two years have seen a much wider awareness of both the fact and implications of the country's rise. In the face of this changed consciousness, it is inevitable that new stances will be adopted and new policy positions struck around the world. This is already happening in Japan, notwithstanding its typically understated tone. Developments there can only be described as ominous. While Europe still thinks of itself as somehow central to the future, east Asia is where the future will be played out. It is in that context that we should see the import of current trends in Japan.

When Junichiro Koizumi, the Japanese prime minister, secured his dramatic and overwhelming victory in September's general election, its significance was generally interpreted as a victory for his programme of privatisation and deregulation. This, however, is secondary. Far more important to Japan's future is Koizumi's implicit and incipient nationalism. This was demonstrated again on October 17 with his latest visit to the Yasukuni shrine, where class A war criminals are honoured, despite the opposition of China and South Korea and the wave of anti-Japanese demonstrations in China earlier this year.

Little is made too explicit in Japanese society, but the new cabinet, which Koizumi announced last week, spoke volumes about both his intentions and likely future trends in Japan. The two top positions, chief cabinet secretary and foreign minister, were given to Shinzo Abe, the man most likely to succeed Koizumi when his term finishes next September, and Taro Aso respectively. Both are rightwing nationalists and both, like Koizumi, are regular visitors to Yasukuni. This is the first time that the three key positions in the cabinet have been occupied by such figures. The previous cabinet secretary, who had opposed Koizumi's visits to Yasukuni, was dropped from the cabinet and the former foreign minister, who did not visit Yasukuni, lost his position.

One might think that this is to read too much into such visits to the shrine. On the contrary, they are symbolic acts, an expression of how Japan's past and future should be seen, and as such a deliberate, if coded, signal to the Japanese. Nor are these visits naive or innocent in the message they send to China and South Korea. Koizumi may express the view that they do not give offence to these countries but he knows that they do. And this, indeed, is their very intention. The more these countries protest, the more likely it is that Koizumi will continue to visit the shrine. He is laying down a marker - for the Japanese and to the Chinese and Koreans. Japan's future is already beginning to take shape.

The causes of growing Japanese nationalism may be diverse, but they are increasingly driven by one overwhelming factor: a fear of the rise of China. That is the only way the behaviour of Koizumi and the other leading lights in the Liberal Democratic party can be understood. It could be different. China, widely credited with having pulled Japan out of its long-running recession, represents an enormous economic opportunity for Japan, and is already Japan's largest trading partner. But far more powerful forces than mere economics are at work. Ever since the Meiji restoration in 1868, Japan has turned its back on Asia in general and China in particular: its pattern of aggression from 1895 onwards and the colonies that resulted were among the consequences.

To engage with China requires Japan to come to terms with its past, and Koizumi's visits to the shrine represent a symbolic refusal to do so. Japan is stuck in its past, and its past now threatens to define its future and that of east Asia. Even during the postwar period, when Japan dominated east Asia economically and China was weak and self-absorbed, it never had an influence commensurate with its economic strength. The reason was simple: its failure to atone for its past and embrace a new kind of relationship with its wronged and distrustful neighbours. If Japan could not do it then, it is even less likely to do it in the face of a resurgent China that is rapidly displacing it as the economic and political fulcrum of east Asia.

The broader significance of the shift within the cabinet, and the Liberal Democratic party more widely, should not be underestimated. Japan remains a profoundly hierarchical society. Apart from a brief few months a decade ago, the Liberal Democrats have continuously held power more or less since the war. This lies in a much longer tradition in which the ruling elite has enjoyed an extraordinary continuity as the determinant and arbiter of Japan's course. If anything, that situation has been strengthened over the past decade with the effective collapse of the Socialist party, once the second-largest party, and the marginalisation of the Communist party; both fiercely opposed Japanese nationalism.

The rise of Japanese nationalism should be seen alongside another trend: the increasingly close links between Japan and the US. Earlier this year Japan affirmed, for the first time, its willingness to support the US in the event of a conflict over Taiwan. It has also agreed to work with the US to develop and finance a missile-defence system whose intention is clearly the containment of China. It is not difficult to see the early signs of a new cold war in east Asia, with Japan and the US on one side and China on the other. It does not have to be like this. If Japan grasped the nettle of its past and ushered in a new era in its relationship with China, South Korea and the rest of the region, it would surely play a major role in the evolution of the most economically powerful region in the world. Instead it looks increasingly likely that Japan will remain in splendid isolation from its continent, weighed down by fear, suspicion and anxiety that its neighbours, above all China, will seek to lord it over Japan in the way that Japan did over them for over a century. Its only solace will lie in looking across the Pacific to the US, which is likely only to intensify its isolation. Japan faces an extremely uncomfortable future.

· Martin Jacques is a visiting professor at Ritsumeikan University in Kyoto, Japan